Market Updates | |
Market Updates | |
2446 VIEWS | |
![]() |
Saturday, April 03, 2020 08:00 AM / Proshare Content
Nigeria: Economic Dashboard @ 030420
Editor's Pick
Source: Cordros Weekly Economic and Market Report -April 03, 2020
Global economy
Chinese manufacturing activities rebounded
strongly in March, signaling resilience despite the headwinds from slumping
external demand. Specifically, manufacturing activities retraced from a record
low of 35.7 index points in February to 52.0 points in March. While the
sizeable expansion was a positive surprise, the improved reading was expected
following the resumption of activities post lockdown. Also, the gauge of the
non-manufacturing PMI settled at 52.3 index points, up from 29.6 points in
February. Despite the positive surprise in March, the Chinese economy is not
totally out of the woods, as growth is expected to slow to 2.0% in 2020E, due
to the impact of COVID-19 on both internal and external demand, especially in
January and February.
The trading activities in the U.S declined
significantly in February, as the country's trade deficit shrank to the lowest
in more than three years, due to the coronavirus pandemic which continued to
take a toll on global commerce. The trade deficit declined by 12.2% m/m, as
imports (-2.5% m/m) declined faster than exports (-0.4% m/m). Also, the
goods-trade deficit with China shrank to the narrowest level since 2009, as
China was locked down due to the virus battle. The U.S economy is expected to
weaken in the first quarter of 2020, as strict measures by the government to
control the spread of the coronavirus has brought the country to a sudden halt,
triggering a wave of layoffs across industries.
Global markets
Global equities markets were bearish this week
as the impact of the spread of the coronavirus weighed on economies, and by
extension performances across markets. Specifically, in the US (DJIA: -2.0%,
S&P: -1.1%), equities pared on the back of weaker than expected jobs
report, which showed a decline of 701,000 jobs in March. Elsewhere, both
European (STOXX: -0.4%; FTSE 100: -1.7%) and Asian (Nikkei 225: -2.1% and CSI:
-0.3%) markets were set to close in red as market sentiment remain weak, as the
economic impact of shutdowns deepened further. For evidence, Eurozone PMI
crashed to its lowest level in history 29.7 points in March, down from 51.6
points in the previous month.
Nigeria
Economy
Nigeria's current account (CA) position recorded
its sixth consecutive quarter of deficit in Q4-19, expanding by 157% q/q. We
highlight that the absolute CA deficit of USD6.97 billion translates to 5.3% of
GDP - representing the highest in history. Analysing the breakdown, we note
that the negative outturn was largely occasioned by trade deficit (USD1.5
billion), the first deficit since Q3-16, following a 17.0% q/q expansion in
imports, which ran ahead of exports (-11.0% q/q). The deterioration in the
trade balance, together with higher services (+9.2% q/q) and income (+0.8% q/q)
payments, were enough to offset the improvement in remittances (+16.9% q/q).
Looking ahead, we see sizeable legroom for further deterioration in CA as
COVID-19 continues to wreak havoc on economic activities. Over 2020E, weaker
oil prices and Nigeria's inability to sell its Bonny Light cargoes, together
with COVID-19 induced decline in capital importation imply further depletion of
the country's FX reserves.
According to the December 2019 Monthly Financial
and Operations Report by the NNPC, Nigeria's crude production (oil and
condensates) declined by 3.5% m/m to 1.98 mb/d in November 2019 - 13.8% lower
than the 2019 budget estimate of 2.30mb/d. The production decline was
attributed to shutdowns of the Forcados terminal (for repairs) and Bonny NCTL
(shut down due to leaks). Meanwhile, petrol subsidy expenses (under-recovery)
settled at NGN551.22 billion over 2019FY - 15.9% below the total amount
expended in 2018FY (NGN648.27 billion). The recent crash in oil price,
occasioned by the rising cases of coronavirus, is negative for Nigeria's public
finances as more than 85% of FX earnings are from crude oil sales. However, the
oil price-induced reduction in subsidy payments should slightly help limit the
impact.
Capital markets
Equities
This week, amid the rising cases of coronavirus
in Nigeria, the domestic bourse recorded another bearish outing, as the NSE
All-share Index plummeted by 3.5% w/w to 21,094.62 points. Consequently, the
YTD return of the market settled at -21.4%. Analysing by sectors, significant
losses in the Banking (-5.3%) and Consumer Goods (-3.9%) sectors, were the
primary drivers of the weak market performance. Also, marginally losses were
recorded in the Industrial Goods (-1.7%) and Insurance (-0.3%) indices. On the
other hand, the Oil and Gas (+2.3%)
sector was the sole gainer, however, given the magnitude of losses
recorded in other sectors, it was not enough to turn the tide.
In our view, the trend witnessed this week is
likely to persist, as weakened market sentiments are expected to pressure
market returns. Nonetheless, we advise investors to take a position in
fundamentally justified stocks.
Money market and fixed income
Money market
The overnight (OVN) rate contracted by
14.50ppts, w/w, to 3.1%. The rate depressed from the start to the end of the
week, as the system became awash with liquidity following inflows from CRR
refunds (c. NGN310 billion) to some banks and OMO maturities (NGN288.54). The
outflow from this week's OMO auction (NGN4.00 billion) was not significant
enough to significantly depress system liquidity.
In the coming week, inflows from OMO maturities
worth NGN130.93 billion are expected to hit the system. Nonetheless, we expect
the OVN rate to expand from current levels as the CBN will likely mop-up excess
liquidity.
Treasury bills
In line with our expectations, bullish
sentiments persisted in the Treasury bills secondary market as excess liquidity
drove demand for OMO instruments, while market players covering up for lost
bids at this week's NTB PMA drove demand in that segment of the market. Thus,
the average yield across instruments contracted by 126bps to 10.5%, with the
average yield across instruments at the OMO and NTB spaces contracting by
171bps and 49bps to 13.8% and 3.2%, respectively. At this week's OMO auction, the CBN offered
instruments worth NGN110.00 billion, however, only NGN4.00 billion worth at the
long end was sold at a stop rate of 12.8% (previously 13.0%).
We expect the demand for OMO bills to continue
to drive down the average yields across both segments of the Treasury bills
secondary market. However, we expect quiet trading activity at the NTB segment
of the market.
Bond
The Treasury bonds secondary market became
bullish this week, as market players demanded for mid and long tenored
instruments. Consequently, the average yield contracted by 25bps to 11.8%.
Across the curve, yields contracted at the short (-3bps), mid (-31bps) and long
(-18bps) segments following demand for the JUL-2021 (-11bps), JUL-2030 (-39bps)
and JUL-2034 (-51bps) bonds, respectively.
We expect bullish activity in the Treasury bond
secondary market as crude oil prices rise, and as investors (local corporates)
look to reinvest maturities.
Foreign exchange
This week, Nigeria's FX reserves remained under
pressure, declining by USD351.04 million WTD to USD35.16 billion (2nd Apr
2020), as offshore outflows intensify and inflows remain benign. Consequently, the naira remained under
pressure, weakening by 0.4% w/w to NGN383.00/USD at the I&E window, and by
3.6% to NGN415.00/USD in the parallel market. In the Forwards market, the
exchange rate increased on the 1-month contract (-0.2% to NGN386.76/USD), but
declined across the 3-month (+0.1% to NGN394.79/USD), 6-month (+0.9% to
NGN408.15/USD) and 1-year (-1.8% to NGN441.01/USD) contracts. Also, the CBN
recently suspended the sale of FX to BDCs, arguing that the decline in demand
for service related payments due to the closures of borders across the globe
necessitated the action.
While we acknowledge that the currency remains
under pressure, we believe the CBN's FX rate alignment and convergence is a
laudable move, which should ease pressures on the balance of payment and curtail
speculative attacks on the naira. Notwithstanding, the size of the recent
adjustment might not be substantial enough to buy the CBN enough time before an
official devaluation.
Monday,
April 06, 2020
The National Bureau of Statistics will on this day release
the full year 2019 Air Transportation Data while Data Science Nigeria will on the same day hold 5-day AI Everyday Virtual Bootcamp
Tuesday, April 07, 2020
KPMG Nigeria Tax will on this day hold webcast on The Future of Tax and Legal - a
global perspective - Session 3 with the theme: Global Supply
Chain planning in a post- COVID- 19 world: The Future of Tax and Legal- a
global perspective.
Wednesday April 08, 2020
The
National Bureau of Statistics will on this day release the Selected
Petroleum Statistics: Oil & Gas Petroleum Report (20190)
Friday, April 10, 2020
AFEX
Commodities Exchange will on this host a Webinar focusing on the Impact
of Covid-19 on Nigeria's Food Systems.
Follow @Proshare and @WebTVng for Updates
Contact for Details:
For further information, enquiry or submission of information, kindly email market@proshareng.com and research@proshareng.com Tel: 0700PROSHARE (070077674273). Call us NOW!
Check out our Events Calendar for event details and follow us on Web, TV, APP and Social Media for updates as the week unfolds. Yours to Serve!
Latest Reports This Past Week
1. FAAC Disburses N716.30bn in January 2020 - NBS
2. FAAC Disburses N2.93trn to FG in 2019 - NBS
3. Total Value of Capital Imported in Q4 2019 Stood At $3,802.38m - NBS
Latest Videos This Past Week
View More Economy, Business, Finance, Investment, Creative Art Videos from WebTV Here
Previous Week(s) Market Outlook
1. What To Expect From
The Markets This Week- 300320
2. What To Expect From The Markets This Week- 230320
3. What To Expect From The Markets This Week- 160320
4. What To
Expect From The Markets This Week - 090320
5.
What To Expect From The Markets This Week - 020320
Related News
1. Investors Gain N10.77bn;
NSEASI Inches Up by 0.10% Amid Negative Market Breadth
2. Investors Lose N104.19bn;
NSEASI Dips by 0.94%; YTD Return Stands At -21.39%
3. Market Maintains Negative
Posture as Investors Lose N15.80bn; NSEASI Dips by 0.14%
4. Investors Lose N276.73bn WoW
as NSEASI Dips by -2.43% to Open the Week Negative
Read More - The Monthly Proshare CONFIDENTIAL
1. NCM2020 (1) - Financial Markets in Transition; Understanding Past Uncertainties, Preparing for New Possibilities
2. Budget 2019: The Hidden Monsters
3. Surviving Uncertain Times in the Nigerian Financial Market
4. The Rich, The Poor and Buharinomics
5. Nigerian Banks- Performance - H1 2018
6. AMCON and Financial Services Debt Burden in Nigeria
7. Poverty Tracker and Nigeria: Raising The Red Flag
8. POCKET Economics: Addressing Income Inequality
9. The Silent Drug Epidemic: A Gathering Storm
10. Judging IMF's Position on Development Indices
11. Money Market: The Folk Road
12. The Headache of Missing Targets
13. 2018 Outlook on the Nigerian Economy: The Need for an Even Keel
14. Nigeria External Economy and the White Noise of Import Dependency
15. States and the Rising Weight of Debt
16. Money Supply: Reeling from Policy Response
17. How Rail and Energy Will Deliver a Robust Economy for Nigeria
18. Too Big Government: The Hysteria of Developmental Quagmire
19. The Nigerian Debt Conundrum and the Need for Automatic Stabilizers